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Pokernomics – Rationality with regards to Risk vs Reward
This term at uni I decided to partake in an economics module based on the financial markets, specifically bonds, stocks and portfolios. Being hungover and not wanting to play poker I thought I would share my thoughts on some of the concepts which I think are applicable to the game and life in general. I believe it is apposite to point out I am no expert on this; its just a collection of my random thoughts which probably contradicts themselves as I go on. Further I will undoubtedly go off on tangents and I have no idea how much I will write or where I will stop. My point behind this thread is to create a model of the poker world, get you to contribute your thoughts of factors driving this world; hopefully we will all get a better idea what the hell makes this world tick – I have completely zero idea J
So what is economics? Its the study of how individuals and society allocate scarce resources. In pokernomics i guess I this scarce resource is MONEY! The basic tendency which people have in my model is that everyone has unlimited needs and wants. This means that if we suppose that everyone is rational their desire is wanting more money. And the marginal utility (satisfaction) is greater with the more resources (money) you have eg winning £200 is better than winning £10. In this model should we believe that it is money that drives people to play as opposed to getting utility from enjoyment from playing the game? I guess at this point we need distinguish between the people in this poker world. Unfortunately for us there is no one consumer. There are people who are economically rational and take into account their budget constraints and rationally make their decision about how much they can afford to play taking into account risk vs reward (everyone makes this decision whether they realise they are actively thinking it or not) – However, can anyone be completely rational, or are there just different degrees of unrationality? In essence I think that recreational players make a very bad decision of risk vs reward- When you choose to take a larger risk you expect the risk premium (the difference between expected results of two different products (in this case stakes/players) to be proportionally more – however in poker this is not the case – you do not get odds in your favour – taking into account rake you get less than 1:1 flat across all the stakes you play. Percentage wise, there is no reward to risking more at a higher stake – the difference is in the absolute outcome. A basic economic principle is that risk requires compensation. Poker offers terrible compensation the recreational player. I therefore assume that there is much deeper side to poker which causes people to make the economically unrational decision of gambling. So what drives people to play and gamble? I think if we want to be a winning player we need to understand the players we are playing against. Thats why psychology is so important in the game. A couple of the factors driving people to play would be; the high levels of emotions thundering through the players mind and the adrenaline flowing through the body; that sinking feeling of being stuck x amount of money and following an unrational course of action to win it back. I think it is an essential part of being a profitable poker player to delve into the mind of these different players (or indeed the particular mood of a player and how it will effect their play). We need to learn as a poker player how to take advantage of these tendencies so that people return to play us. For me I give people a fun game- I don’t sit there hours on end folding. I make the game less on pure strategy and more on emotions and manipulating peoples thoughts and perceptions – people make bad decisions when emotional for whatever reason. Therefore I am a strong believer that we should sometimes play unrationally if we perceive a future advantage from that course of action. An example of this is if someone is here to gamble should we not gamble with them in an attempt to increase their marginal utility – this means that they will return to buy the good (playing poker vs us) in the future?
Got to go to tennis now, but may come back later and go into risk vs reward vs varience and assumptions which can be made. Hope some of this makes sense and I know i didn’t quite fulfil my aim of building a model, but hope its a start where u can all join in.
XXXX
Comments
My of my Mr Sparce, a quality Post!
A few more of these would do this place a world of good.
More please.
I to am a believer of playing irationally and gambling with certain players. I try to do this at lower limits and then when i sit at a higher buyin, they will join and i can try to take advantage of my image. At the same time i know exactly what mindset the oppo is in and can exploit that accordingly.
Generally, there opinion of you wont change for a good while, so to gamble and risk say 2-3 buyins at the start is worth say 10-20 buyins further down the road.
Whereas if i dont give them the gamble they want and i take the one or two initial buy ins at the start of the first session, i lose all future action and long term profitability from this oppo.
good post though sparce ..very thoughtful
sparce is your second name jesus lol !
you are just after getting inside my head with this lol,
best thread/post i have seen on here in along time.
i wish to add to your rationality the players known as :
the accountants
with regards to risk verus reward !
these type of players have found the profitable balance of the above ,
whether it be high mid or low stakes.
these are very forensic in their risk taking ,
i may indulge further with this post at a later date,
hence it would take alot more time,
just to say one more time excellent thread/post !
rover and out !
I actually think my perception of risk vs reward may be a little wrong when looking into why bad players play. Earlier I was comparing risk between stakes of poker. However, to understand these players, we need to compare the risk vs reward against the normal world and how availability of information influences our views.
Suppose our principle reason for playing is money. If u have any sense and are playing for a living you would want to have 50 buy ins (if u r intelligent 100 buy ins!!). This is because we have collected information (or done the maths, or had others tell us) that swings in poker can be very large. Now lets say we are playing 100 pound cash tables. So our bankroll is £10,000. Now in reality we have lots of different ways in which we could invest this money. We could buy shares with it – say we do well this could mean 30% on our investment, £3000 pounds. We could be a little safer and put the money in the bank and get a return of 4% - £400. Obviously here one has no risk, the other one has a high risk attached and we could lose a lot of the original £10000; the £2600 difference between the two is risk premium which is compensating us for taking the more risky option.
Now lets get into poker, we don’t know what is going to happen when we play, similar to the stock market. Therefore information is key!!! Who here on sky knows exactly how many hands they play and what their win rate is? To justify playing poker you should keep a very good record of your winnings and be able to work these things out. If I was to make a bet, I reckon that most of you reading this perceive your winnings to be higher than they actually are. I would further bet that our fish’s perceived future winnings will be even higher. They enter a 100 pound table, and are probably hoping to win 100 pounds – who seriously plays a table in an attempt to win a few BB’s? Will this alter their play (mr any two cards)? Personally I realise that with good play over a large sample of hands that I am only going to be winning say 3bb over 100 hands. So if 1 tabling a £100 table I am looking on making about £3 every hour and a bit. Thats why multi tabling becomes important to boost up an hourly rate (economies of scale – but be careful you don’t over do this and have diseconomies of scale and start losing cause u cant concentrate). So how many hands should a full time player be playing over a year? I would say a minimum of 300k is easy to do. So in this example I would be likely to make £9000 a year. That works out as 90% return on your investment which is a good rate (+u may keep some of that amount in the bank anyway so added interest)! Note i am only able to make these calculations due to having a superior amount of information - There probably won’t be that higher variance in this either, and even if there are parts where there are large swings, having 100 buy ins would allow you to get through the downswings times (presuming you don’t have massive leaks in your game).
So now onto what the fish think when they enter a game? As I pointed out earlier they often only have a few buy ins to play for. Their aim is probably to double their buy in, this can lead to bad play – playing any two cards to hit big etc. They compare their reward of winning a £100 to the “real world” where to get that sort of return is very hard! However they have made this judgement on a bed of incorrect assumptions and no grasp on their actual risk. They probably presume that there is at least a 50:50 chance of them winning and that therefore justifies the risks they take – if they knew their subject better they would soon realise they could not be further from the truth. Nor do they understand the variance which occurs, and how with only a few buys it is super likely that they will go to bustoville, population them. They think the £100 reward for their risk is worth it, but they don’t realise that for trying to win £100 their risk is extremely extremely high! Including variance its even worse.
In essence what I am getting at is that people are inherently greedy, and the thought of easy money is something which is synonymous to the poker world. Our poker play can only improve from learning and thinking of what our opponents are trying to accomplish.
So what can we learn from this? Poker should be extremely hard work and we need to work at our game. Information is key whether it’s to learn how to play, see how we performed, or to use it to predict future cash flows. A further morale of the story is to have an adequate bankroll so you can among other things combat variance. I would further bet that half the people reading this will sadly ignore it and continue in their degen ways and be underolled. Perhaps the biggest tragedy of all though is whether I can take my own advice :-) though not completely idiotic I sometimes am slightly underolled by my 100 buy in standard – perhaps I can make a fresh start with lent – don’t play £10/20! Who would bet that I don’t keep to it? Human nature pfft!
XXX
Nice thoughts only the 9k looks like a nice return on your work until you look at it in another manner.
£3/hr presuming your including the rake paid in this) an hour per table say 4 tables comes to £12 per hour - 9000/12= 750 hours of play at standard working week = 20 weeks of work.
300k hands realistically 70 hand per hour per table 4 tables around about the 1000 hrs again 28 weeks of work.
Is really quite a lot of work for a limited return.
IMHO your comparisons of the expected returns are flawed due to the work involved in getting the money from poker.
Other tha that a very interesting and informative read.